Europe Links 15 Power Markets in Biggest Shift Since 1990s

Feb 04, 2014 11:16 am ET

(Updates with power prices starting in second paragraph.)

Feb. 4 (Bloomberg) -- Power markets across 15 European nations from the U.K. to Finland were linked today in their biggest transformation since liberalization in the 1990s.

Prices in the first next-day power auction held by network operators and energy exchanges across countries that account for 75 percent of Europe’s electricity supply ranged from 35.98 euros ($48.58) a megawatt-hour in Germany to the equivalent of 53.88 euros in the U.K. The move is intended to smooth price differences between nations through better control of cross- border flows, the Agency for the Cooperation of Energy Regulators, or ACER, said today in a statement.

The process, known as market coupling, is the biggest step in a push to integrate electricity markets by the end of this year across the 28-nation European Union, which forced utilities to open up their business to competitors in the 1990s. Linking supply and demand through trading may save consumers as much as 4 billion euros a year by enabling electricity to flow efficiently to markets where it is most needed, according to the European Commission, the bloc’s regulator.

“I feel very good now that the start was successful,” Jean-Francois Conil-Lacoste, chief executive officer of EPEX Spot SE, a Paris-based power exchange participating in the program, said by telephone. “But it’s also the start of a big responsibility on our shoulders to make it happen every day from today on.”

Denmark, Poland

Day-ahead power market coupling links Austria, Belgium, Denmark, Estonia, France, Finland, Germany, Latvia, Lithuania, Luxembourg, Norway, the Netherlands, Poland, Sweden and the U.K. excluding Northern Ireland, according to data on the website of Nord Pool Spot AS, an Oslo-based exchange.

“The start of the northwest Europe market coupling proves that the internal energy market 2014 is not just lip service,” European Union Energy Commissioner Guenther Oettinger said in a statement. “Fragmented European energy markets will soon be history, which is certainly good news for European customers.”

Publication of the first auction’s results was delayed, according to statements on the websites of EPEX Spot and Nord Pool Spot. “It was only a small delay by seven minutes,” Stina Johansen, a spokeswoman for Nord Pool Spot, said today by telephone from Lysaker, Norway. The results were released at 12:49 p.m. Oslo time, compared with the usual time of 12:42 p.m., she said.

Regional Prices

“We didn’t see anything unusual looking at prices today,” EPEX Spot’s Conil-Lacoste said. Every exchange will still publish the price for its own region, he added.

Next day power for delivery in Germany, Europe’s biggest market, declined 18 percent, according to EPEX Spot data on Bloomberg, and next-day delivery in France fell 8.1 percent to 43.89 euros. The U.K. next-day contract added 0.2 percent to 44.65 pounds ($72.77), data from APX Holding BV show.

Europe began connecting day-ahead national power markets in November 2006, when France, Belgium and the Netherlands integrated allocation of transmission capacity on electricity cables and power trading. Germany, the region’s biggest market, and Luxembourg were added in November 2010.

Before coupling, traders selling power into another country had to buy cable capacity in advance and then make a separate trade on another exchange, exposing themselves to two sets of price risk. The program allows traders to bid for energy on local exchanges, which then automatically allocate cross-border capacity based on price differences with neighbors.

Cost Goal

The project is part of the EU’s third package of legislation intended to remove national barriers to power and gas trading and reduce energy costs. Consumer electricity prices rose 26 percent in the five years through 2012 to the highest since at least 2007, according to data from the bloc’s statistics office.

“Coupling favors price convergence, which fosters competition and therefore better services, and ultimately better prices for consumers,” Alberto Pototschnig, director of ACER, said by e-mail from Ljubljana, Slovenia, on Jan. 30.

The Spanish and Portuguese electricity markets will be next to join the market coupling, according to ACER. This should happen in May, Andrew Claxton, director of business development and cross-border market integration at APX Holding BV in Amsterdam, said Jan. 31 by e-mail. Italy, Slovenia and Greece are expected to join at the end of this year, Pototschnig said.

Price Convergence

Market coupling didn’t stop the link between prices on Europe’s two largest power markets, Germany and France, weakening for two consecutive years, according to data from EPEX Spot. Day-ahead prices converged in the nations 48 percent of the time last year, against 64 percent in 2012 and 67 percent in 2011, the data show. In January, prices converged 52 percent of the time, the exchange said yesterday in its monthly report.

Increased renewable-energy output in Germany has clogged power-transport capacity at the French border, so “market coupling won’t always lead to converging prices,” Wolfram Vogel, a spokesman for EPEX Spot, said by e-mail Jan. 28.

Renewable energy’s share of German electricity supply more than doubled over seven years to 23 percent in 2013, according to data from AG Energiebilanzen e.V., an energy lobby and research group.

--Editors: Dan Weeks, John Deane